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You May Love Each Other, But Should You
Invest Together?
It's one of the most important questions a couple will face
in their relationship but it so rarely gets asked until a
relationship is well underway — should we pool or separate our
money for investment?
The answer is as unique as the both of you. But there are
some critical facts and some questions to consider as you
develop a financial strategy for a lifetime.
Pooling can be a great idea after a marriage because the both
of you are legally bound together, so why not bind your finances
for potential maximum return? Many financial experts believe
it's a good idea for the simplest of reasons: The bigger the
pile of money you two can gather, the greater the potential for
financial gain with the right advice.
But there's more to it than simply combining your assets.
Pooling your investment dollars should produce not only shared
decision-making, but shared awareness of everything going on
with your finances for a lifetime. It's the kind of cooperation
that will not only benefit you all the years of your marriage,
but also provide a surviving spouse the knowledge to function if
the other dies suddenly or is incapacitated.
It's a move that women need to consider in particular — it's
to their advantage to maximize the total investment pie because
chances are they will be the lower-earning spouse, as they may
go years without income if they stay home to raise children. And
if the marriage breaks up — as roughly 40 percent of them do
these days — she'll need extensive assets to prepare for a
retirement that will be statistically longer than her husband's.
But how about a couple that wants to plan separately? The first
question is: Why? There may be compelling reasons — for
instance, one spouse has assets he or she wishes to protect from
another spouse engaged in a high-risk business proposition.
Others may have significant inherited family assets that need to
be protected for heirs from potential loss in a divorce. And of
course, this is the least attractive reason, but it happens: One
spouse simply doesn't trust the other.
These questions and more are a good reason for a couple
planning to marry to sit down with a trained financial expert
like a Certified Financial Planner™ professional to go over
their respective and combined goals for home ownership,
retirement, kids' college savings and various other lifestyle
goals. A visit to tax and relevant legal professionals makes
sense before the wedding as well.
Things to consider:
What approach will get you to your goal faster? Young
people starting out literally need to save every nickel to save
for a first home. It makes sense to figure out how much you can
jointly put aside and where to invest that money based on your
risk tolerance.
How can your employer help? Obviously max out on your
401(k) and other retirement savings options — particularly if
there's significant company matching involved, but check to see
if your other benefits will do more for you and your spouse. See
if joining on one or the other health plan might be a better
value than going it alone on your respective plans. If you have
a health savings account that your spouse hasn't, see how you
can make that a part of your overall joint investment strategy.
Also, don't forget employee discounts that might cut your
overall household spending.
Let your competing investment styles…compete. There
are plenty of studies on this, but they seem to hold steady: Men
tend to take more investment risks, women seem to be
risk-averse. One of the advantages to working with a trained
financial expert is not only their ability to make solid
investment suggestions for you, but to identify the differences
in your investment approaches and find compromises that work
best for the both of you.
Talk. Talk about your financial expectations and what
goals you'd like to achieve. Talk about what you're afraid of.
And most important, talk about your money history — your credit
rating and score, any troubles with credit in the past,
including bankruptcy. Oh, and if you survive these initial
discussions, make a promise to talk about money once a month.
February 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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